America's Great Depression (42 page)

America’s Great Depression

Hitler’s “cure” for unemployment by forcibly sending married women back to the home. Hoover also records that he accelerated the deportation of “undesirable” aliens, again helping to ease the unemployment picture. He deported sixteen to twenty thousand aliens per year.7 As a consequence, while the immigration law had already reduced net immigration into the United States to about 200,000 per year, Hoover’s decree reduced net immigration to 35,000 in 1931, and in 1932 there was a net emigration of 77,000.

In addition, Hoover’s Emergency Committee on Employment organized concerted propaganda to urge young people to return to school in the fall, and thus leave the labor market.

At the end of July, Hoover organized a planning conference of leading organizations, designed to widen home ownership and bolster shaky home mortgages. The Planning Committee established by Hoover included representatives of the National Association of Real Estate Boards, the American Federation of Labor, the American Farm Bureau Federation, the National Farmers Union, the National Grange, the U.S. Chamber of Commerce, the American Institute of Architects, and the American Home Economic Association.

By October, Hoover apparently felt that the time had come for self-congratulation. In an address to the American Bankers’ Association, he summed up his multi-faceted intervention as follows: I determined that it was my duty, even without precedent, to call upon the business of the country for coordinated and constructive action to resist the forces of disintegration. The business community, the bankers, labor, and the government have cooperated in wider spread measures of mitigation than have ever been attempted before. Our bankers and the reserve system have carried the country through the credit . . . storm without impairment. Our leading business concerns 7The labor union movement applauded the program, with William Green urging increased Congressional appropriations for the Federal border patrol to keep out immigrants. In California, Filipino field hands were beaten and shot to keep them from employment in the agricultural valleys. Irving Bernstein,
The
Lean Years: A History of the American Worker, 1920–1933
(Boston: Houghton Mifflin, 1960), p. 305.

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have sustained wages, have distributed employment, have expedited heavy construction. The Government has expanded public works, assisted in credit to agriculture, and has restricted immigration. These measures have maintained a higher degree of consumption than would otherwise have been the case. They have thus prevented a large measure of unemployment. . . . Our present experience in relief should form the basis of even more amplified plans in the future.

So they did form the basis—of plans that aggravated the depression even further. To the bankers, Hoover delivered his pet theory of the crash: that it was caused by credit being too scarce to commercial borrowers, it being unduly “absorbed” by speculation. He hailed the Federal Reserve System as the great instrument of promoting stability, and called for an “ample supply of credit at low rates of interest,” as well as public works, as the best methods of ending the depression.

The wage agreement that Hoover had extracted at the White House Conferences unfortunately held firm for a long while, thus becoming the prime generator of unemployment. Hoover still proudly records that the wage agreement lasted in the organized trades throughout his term, while most of the non-union employers also complied. In August, William Green had praised the stabilizing effects of Hoover’s program, emphasizing its success in maintaining wage rates. And in October, when Green presented Hoover to the annual Convention of the A.F. of L., he was exuberant: The great influence which [Hoover] exercised upon that occasion [the White House Conferences] served to maintain wage standards to prevent a general reduction of wages. As we emerge from this distressing period of unemployment we . . . understand and appreciate the value of the service which the President rendered the wage earners of the country.

Green had no doubt that Hoover’s “great influence served to maintain wage standards and prevent a general reduction of wages.” In his address before the Convention, Hoover returned to the glorious theme of the White House Conferences:
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America’s Great Depression

At these White House Conferences the leaders of business and industry undertook to do their utmost to maintain the rate of wages.

and to distribute work among the employees. He hailed the success of that pledge, for the

great manufacturing companies, the railways, utilities, and business houses have been able to maintain the established wages. Employers have spread their employment systematically.

The spreading of employment was, in fact, a spreading of unemployment, and helped to maintain the existing wage scales by keeping these unemployed off the labor market. Hoover virtually admitted this when he said:

Through distribution of employment large numbers of workers have been saved from being forced into competition for new jobs.

Another evil in this work-sharing program was that employers were not permitted to discharge their least marginally-productive workers—those whose productivity was below the artificially high wage-rates. Hence, costs to the employers became greater, and they suffered aggravated losses.

Hoover also commended the businessmen for their great resolution in maintaining wage scales even in the face of falling prices,8

and pointed out that public works had “taken up the slack” and that railroads and public utilities had been induced to increase their construction by $500 million.

Also in October, Hoover launched the first of repeated attacks against his old
bete noire
: the New York Stock Exchange. He threatened Federal regulation of the Exchange despite the fact that it was wholly under the jurisdiction of New York State and that therefore such regulation would be patently unconstitutional. Hoover forced Richard Whitney, head of the Exchange, to agree “voluntarily” to 8In the same month, October, however, Hoover’s aide Edward Eyre Hunt, writing to Colonel Woods, was critical of whatever wage cuts had occurred.

Bernstein,
The Lean Years: A History of The American Worker, 1920–1933,
p. 259.

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withhold loans of stock for purposes of short-selling. Short-selling was—and usually is—the chief object of attack by demagogues who believed that short sales were somehow fundamentally responsible for falling stock prices, thereby forgetting that for every short seller there must necessarily be a buyer, and also that short-selling accelerates the necessary depression–adjustment in stock prices. Senator Smith Brookbart of Iowa had, as early as January, 1930, introduced a bill to prohibit all short selling.

In the same month, Hoover formed a nationwide organization for the relief of distress. Colonel Arthur Woods was appointed to head the President’s Emergency Committee for Employment; in the group were Fred C. Croxton, Edward Bernays, and Dr. Lillian Gilbreth.9 As in Hoover’s previous venture in 1921, the committee organized committees in each state and locality for unemployment relief. Shortly afterward, Hoover again asked for enlarged Federal public works appropriations. One public work already begun in September was the appropriately named “Hoover Dam” in Arizona, a government project to sell water and electric power. The New Deal was later happy to complete the project, as it also did with the Grand Coulee Dam on the Columbia River, and with dams in the Central Valley of California.10

9Bernays’s major contribution was insistence on the public-relations superior-ity of the word “employment,” rather than “unemployment,” in the name of the organization. Ibid.
,
pp. 302–03.

10Hoover’s interest in governmental dams by no means began with the depression, as witness his proud launching of the Boulder Dam in December, 1928. That private business is not always a reliable champion of free private enterprise, is shown by the approval of the dam by such utility companies as the Southern California Edison Company, which hoped to benefit by purchasing cheap, subsidized government power. In addition, private power companies saw Boulder Dam as a risky, submarginal project plagued by grave engineering difficulties, and were content to have the taxpayers assume the risk.

On the other hand, it must be admitted that Hoover staunchly resisted Congressional attempts during 1931 and 1932 to launch into socialized electric power production and distribution at Muscle Shoals, a project strongly opposed by private power companies and later enlarged by the New Deal into the Tennessee Valley Authority (TVA). See Harris Gaylord Warren,
Herbert Hoover and the Great
Depression
(New York: Oxford University Press, 1959), pp. 64, 77–80.

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America’s Great Depression

In Hoover’s second annual message in December, the President, while conceding that factory employment had fallen by 16

percent since 1928, and manufacturing production had declined by 20 percent, proudly pointed out that consumption and wage rates had held to their former levels, bank deposits were 5 percent higher, and department store sales only 7 percent less. Unfortunately, Hoover did not attempt to relate these movements, or to realize that the declines of employment and production were the consequences of policies that bolstered consumption and wage rates. Hoover conceded that wheat and cotton prices were 40 percent below 1928, and farm prices 20 percent lower, but he hailed the achievement of the FFB in keeping wheat prices 50 percent higher than that of Canada, and wool prices 80 percent higher than in Denmark. Hoover apparently never saw that keeping prices above the world market would be self-defeating, since few customers would buy American products at prices artificially higher than they could obtain abroad.

In keeping with the general tone of optimism, the American Economic Association stated at year’s end that recovery in the spring of 1931 seemed assured. More astute than these “established” economists were a few others who operated with better theoretical tools. Thus, at the end of July, H. Parker Willis charged, in an editorial in the
New York Journal of Commerce
, that the current easy money policy of the Federal Reserve was causing the increase in bank failures, “chiefly due to [their] inability to liquidate.” Willis pointed out that the country was suffering from frozen and wasteful malinvestments in plants, buildings, and other capital, and that the depression would only be cured when these unsound credit positions were liquidated.11 The economist Joseph Stagg Lawrence upheld thrift and attacked the prevalent idea that consumption led to prosperity. He pointed out that purchases of consumer goods were being maintained, while the main declines were taking place in producers’ goods industries, such as construction, steel, and freight traffic.12

11
Commercial and Financial Chronicle
131 (August 2, 1930): 690–91.

12Joseph Stagg Lawrence, “The Attack on Thrift,”
Journal of the American
Bankers’ Association
(January, 1931): 597ff.

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One of the best counsels on the depression was set forth in an annual report by Albert H. Wiggin, chairman of the board of the Chase National Bank, in January, 1931. We can assume that he was helped in making the report by Dr. Benjamin M. Anderson, economist for the bank. Wiggin called for the reduction of the Federal capital gains tax, pointing out that the 122 percent tax on realized capital gains induced people to hold onto their stock rather than sell during the boom, and then fostered selling during a depression, in order to take the realized stock losses. Wiggin also urged reduction in the tariff, noting that we had merely delayed the adverse effects of the protective tariff from 1924 until 1929 by heavy purchase of foreign bonds. With the decline in the foreign bond market, foreign countries no longer had the funds to purchase our exports. Only a reduction in our tariffs would permit American exports to flourish. Wiggin further pointed out that production had declined far more than consumption, thus indicating that it was not lack of “purchasing power” that was causing the depression. Finally, he noted that in the 1921 depression, costs and wages had been quickly scaled down, and unsound activities liquidated: Past costs of production were forgotten, and goods were sold for what the market would pay . . . [but] we attempted, as a matter of collective policy, to hold the line firm following the crash of 1929. Wages were not to be reduced, buying by railroads and construction by public utilities were to be increased, prices were to be maintained, and cheap money was to be the foundation.

The policy has . . . failed. . . . It is bad policy for a government, or for an industry by concerted act, to try to keep prices permanently above the level which the supply and demand situation justifies. . . . We must keep the markets open and prices free. It is not true that high wages make prosperity. Instead, prosperity makes high wages. When wages are kept higher than the market situation justifies, employment and the buying-power of labor fall off. . . . Our depression has been prolonged and not alleviated by delay in making necessary readjustments.13

Unfortunately, Wiggin’s wise advice went unheeded.

13
Commercial and Financial Chronicle
132 (January 17, 1931): 428–29.

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America’s Great Depression

THE PUBLIC WORKS AGITATION

While a few economists gave sound advice to little avail, scores of others helped make matters worse by agitating for a broad public works program. The Employment Stabilization Act had first been introduced into the Senate by Senator Robert Wagner of New York in 1928, under the inspiration of the veteran public works agitator Otto Tod Mallery as part of a comprehensive plan of government intervention to combat unemployment.14

The act provided for an Employment Stabilization Board, consisting of several Cabinet officers, to increase public works in order to stabilize industry and relieve unemployment in a depression. In early 1930, Senator Wagner seized the opportunity to introduce his program again. He asserted, with due consistency, that since we now had a Federal tariff and a Federal Reserve System, why not also accept the responsibility for unemployment? No one thought to answer Wagner that his logic could be turned around to indicate repeal of both the protective tariff and the Federal Reserve. Wagner’s bill authorized $150 million per annum for his program.